The Weekly Rap! Friday June 14th, 2013

The bond market’s month-long plunge continues to keep long-term interest rates on mortgages and Treasurys at their highest levels in more than a year. The Dow last traded at 15,052. The S&P 500 is trading at 1,624. Gold is trading higher at $1,387 an ounce, while oil futures at $97.97 a barrel. Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.69/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, last traded at 2.13%. 30-year Treasury Bond yields last traded at 3.30%. Rates on 30-year fixed-rate mortgages stayed a hair above 4% this week. Just a month ago, they were below 3.5%. Since May 8th Fannie Mae MBS (Mortgage Backed Security) with 3% coupons has fallen nearly 4 points to their lowest levels in a year. MBS yields are interest rates at which banks sell their loans into Fannie Mae and Freddie Mac bond programs. Rising yields mean higher consumer-mortgage rates.

The FNMA 30-year fixed 3.0% coupon, containing 3.25-3.625% mortgages, pretty much the benchmark or how rate sheets are priced these days is currently trading at 100.43, a tad better than where they were a week ago. Basically each percent change in the price of the security translates to the price (or points paid or credited) of the mortgage rate. The higher the number (price), the better the rate.

In economic news this week; The readers digest version is the economy continues to limp along with layoffs falling, inflation rising slightly, Retail Sales rising slightly, and consumer sentiment dropping.

The National Federation of Independent Business said its small-business “optimism” index rose 2.3 points to 94.4 in May, which also is the second-highest level since the recession. Of the 10 components, 8 rose, led by a 10-point jump in the “expect economy to improve” category, which still is a net negative 5%. When asked the top business problem, 24% cited taxes, 23% said regulations and red tape, 16% said weak sales and 2% said financing or access to credit.

On the unemployment front: The number of people who applied for new regular state unemployment-insurance benefits fell 12,000 to 334,000 in the week ended June 8, reaching the lowest level since early May, pointing to a slower pace of layoffs.

On the inflation front: Wholesale prices rose in May for the first time in three months, nudged up by higher costs of gasoline, fresh eggs (a record 41.6% jump in the price of eggs) and light trucks. The producer price index climbed 0.5% last month. Excluding food and energy, core wholesale prices rose a much smaller 0.1%. The core rate is viewed by the Fed as a more useful gauge of underlying inflationary trends. A better measure of whether Americans are paying more for goods and services, the consumer price index, will be released next week.

Retail sales 0.6% rose in May, the fastest rate in three months, led by higher demand for autos, building materials and groceries. The details of the retail report though were somewhat mixed, in a sign of lingering softness in the American economy. Gross domestic product is expected to expand less than 2% in the second quarter and the latest sales figures contain little evidence that growth is about to speed up. The surge in May was largely driven by a snapback in auto sales, which generate about one-fifth of all retail spending. Excluding autos, retail sales rose a smaller 0.3%.

Consumers are the main engine of economic growth and retail sales account for a big part of what they spend. The retail report usually offers clues on whether Americans are feeling confident enough about the economy to increase their spending. In the past year, retail sales have risen a solid but unspectacular 4.3%.

While we’re on the consumer; led by gloomier views on current conditions, a gauge of consumer sentiment declined this month, missing analysts’ expectations. After hitting the highest level in almost six years in May, the University of Michigan and Thomson Reuters’s consumer-sentiment index fell to a June reading of 82.7 from a May reading of 84.5. Markets look at data on consumer sentiment for signals about spending. According to the UMich report, a gauge of consumers’ views on current conditions dropped to 92.1 in June from 98 in May. A decline in confidence is never good news, but to the extent it will dampen further some of the speculation about near-term Fed tapering, it could be good (temporarily) for the markets.

The U.S. government posted a budget deficit of $139 Billion in May. Although expected to record a full-year deficit of less than $1 trillion for the first time since 2008, for the full 2013 fiscal year, the “nonpartisan” Congressional Budget Office is projecting a deficit of $642 Billion. Now what do you want to bet that IF they ever get around to balancing the budget and maybe dare I say, have a surplus, they will just spend it rather than paying down the debt that our children will inherit.

I don’t understand why more people aren’t outraged over the actions of our politicians. The entire nation should be worried and raising their voices over this. Politicians beg for our support/vote, and as soon as they get to Washington the game changes and they forget that they represent the people that sent them there. Large corporations may have written them big checks but the peoples votes are what ultimately got them elected. Personally I think we should “sequester” (means they can’t leave by the way) our congressmen and representatives in a cheap hotel somewhere until they reach a budget agreement.